Nigeria’s dollar bonds were on track for one of their worst days in 17 months on Monday as investors questioned whether the government’s economic reform plans would be derailed by mass protests, according to a report by Bloomberg.
The spread between Nigerian dollar debt and US treasuries widened by 46 basis points to 715, according to JPMorgan Chase & Co. data, the largest single-day increase since March 2023.
“For the past 3-4 days, it has been negative on Nigeria dollar bonds, due to the tension on the political climate. Investors tend to react to these things,” said Gbolahan Ologunro, portfolio manager FBNQuest, an investment bank.
Five of Nigeria’s eurobonds ranked among the worst performers in a Bloomberg index of emerging and frontier sovereign debt. The 2051 securities were hit hardest, with prices dropping to 73.06 cents on the dollar, their lowest close since November.
Last year, foreign investors applauded President Bola Ahmed Tinubu over the bold reforms such as removal of fuel subsidy and unification of the naira.
However, recently, tens of young Nigerians have staged #EndBadGovernanceinNigeria protests across the nation since Thursday to demonstrate against the cost-of-living crisis in the nation. They are advocating reduction in the cost of food, removal of fuel subsidy, as well as reduction in insecurity and cost of governance.
The protests, scheduled for 10 days, started across major cities in the country on Thursday, but it has abated in some parts of the country.
Damilare Asimiyu, macroeconomic strategist Afrinvest Consulting, said that the sell-offs in the Nigeria Eurobonds market is as a result of regional factors and specific nationality factors.
“In terms of the protests, the President mentioned that the subsidy won’t be reversed. If the pressure continues to mount, it might be reversed, meaning the government will have to dip into its reserves, which can cause concerns to foreign investors on the government’s ability to meet its obligations,” he said.
Fitch Ratings had earlier this year revised Nigeria’s credit outlook to positive as a result of reforms implemented over the past year to support the restoration of macroeconomic stability and enhance policy coherence and credibility.
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Asimiyu said that though the protest is one of the causes of the sell-offs, there’s been a global rout since last week.
Global financial markets are in turmoil as a wave of sales grips equities globally. Fears of a looming recession and uncertainty over central bank policy have sent investors scrambling for safety.
The US stock market for one has been experiencing a decline as the global stock selloff deepens amid concerns that the Federal Reserve is moving too late to support a slowing economy, sending investors into the safety of bonds.
He also said that there’s also caution about the Africa market generally.
“Currency risk and previous defaults are some of the reasons foreign investors are cautious of Africa.”
Olaolu Boboye, lead economist CardinalStone, said: “Investors are wary of the uncertainty created by the protest.”
On Thursday, the Bank of England delivered its first interest rate cut in more than four years, taking the key rate to 5 percent. The bank rate had been held at a 16-year high of 5.25 percent since August 2023.
“With the UK rate cut there should be strong bullish sentiment on the Eurobond, but we’ve seen otherwise,” Ologunro further said.
